August 27, 2014 Newsletter
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August 27, 2014
 

SFIG News

SFIG Calendar

Advocacy Outlook

Issues Spotlight

Recent Developments

Next Week in Washington

 
SFIG NEWS
SEC Releases Regulation AB II Final Rules

Today, the U.S. Securities and Exchange Commission (“SEC”) unanimously adopted rules revising the disclosure reporting and offering process for asset-backed securities and has released a press release and fact sheet regarding the final rule. SFIG’s high-level summary of the final rule can be found here.

SFIG will be holding a member-wide call to walk through the key points of the Regulation AB II rules on Tuesday, September 2nd at 11:00 a.m. (EST). If you are interested in joining this call, please contact Alyssa.Acevedo@sfindustry.org. With over 500 callers already registered, space for this call is limited. Please indicate your interest as soon as possible. This call will also be recorded for those who are unable to make the call but wish to listen in afterwards.

 
 
SEC RELEASES NRSRO FINAL RULES 

Earlier today, the U.S. Securities and Exchange Commission (“SEC”) adopted rules to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act concerning nationally recognized statistical rating organizations (“NRSROs”), providers of third-party due diligence services for asset-backed securities, and issuers and underwriters of asset-backed securities under the Securities Exchange Act of 1934. The rule passed by a vote of 3-2, with the two Republican Commissioners voting against. The SEC has also released a press release and fact sheet regarding this final rule.

According to the press release, the new requirements for NRSROs address internal controls, conflicts of interest, disclosure of credit rating performance statistics, procedures to protect the integrity and transparency of rating methodologies, disclosures to promote the transparency of credit ratings, and standards for training, experience, and competence of credit analysts.  The requirements provide for an annual certification by the CEO as to the effectiveness of internal controls and additional certifications to accompany credit ratings attesting that the rating was not influenced by other business activities. The Commission also adopted requirements for issuers, underwriters, and third-party due diligence services to promote the transparency of the findings and conclusions of third-party due diligence regarding asset-backed securities.

SFIG will be reviewing the rules to assess the impact to the structured finance industry.  If you are interested in joining SFIG’s Credit Rating Reform Task Force, please contact Amanda.Bateman@sfindustry.org.

 
 
FED TO MEET ON FINAL LCR RULE AND MARGIN REQUIREMENTS ON NON-CLEARED SWAPS PROPOSAL

On Wednesday, September 3rd at 10:30 a.m. (EST), the Board of Governors of the Federal Reserve will consider the following agenda items during an open meeting:

  • Final Rulemaking: U.S. Liquidity Coverage Ratio (“LCR”)
  • Proposed Rulemaking: Margin Requirements on Non-Cleared Swaps

Please click here for additional details. SFIG will follow up shortly with the Regulatory Capital and Liquidity Committee and Derivatives in Securitization Task Force to discuss next steps on the LCR rules and Margin proposal, respectively.

Members who are interested in learning more about SFIG’s advocacy on the Liquidity Coverage Ratio should please contact Mary.Robinson@sfindustry.org. For additional information on the Derivatives in Securitization Task Force, please contact Alyssa.Acevedo@sfindustry.org

 
 
SFIG CALENDAR
REGULATION AB II TASK FORCE CALL

TUESDAY, September 2, 2014
11:00 a.m. – 12:00 p.m. (EST)

 
 
LEGAL COUNSEL COMMITTEE CALL

WEDNESDAY, September 3, 2014
2:00 p.m. – 3:00 p.m. (EST) 

 
 
CREDIT RATING REFORM TASK FORCE CONFERENCE CALL 

THURSDAY, September 3, 2014
10:00 a.m. – 11:00 a.m. (EST)

 
 
RESIDENTIAL MORTGAGE COMMITTEE CALL ON RMBS 3.0 PROCESS

THURSDAY, September 4, 2014
3:00 p.m. – 4:00 p.m. (EST)

 
 
CHINESE MARKET COMMITTEE CALL

THURSDAY, September 12, 2014
9:00 a.m. – 10:00 a.m. (EST)

 
 
IMN ABS EAST 2014 CONFERENCE (SFIG—LEAD ASSOCIATION PARTNER)

SUNDAY, September 21, 2014 – TUESDAY, September 23, 2014
The Fontainebleau Hotel
Miami Beach, FL
Registration available here

 
 
SFIG FALL SYMPOSIUM

TUESDAY, October 21, 2014
6:00 p.m. – 9:00 p.m. (EST)
Ernst & Young
5 Times Square
New York, NY  10036
Registration and agenda will be forthcoming

*Please note, this event is closed to the press.

 
 
SFIG & IMN PRIVATE LABEL RMBS REFORM SYMPOSIUM

WEDNESDAY, November 12, 2014
New York Marriott Downtown
New York City, NY
Registration available here

 
 
PLI SEMINAR: NEW DEVELOPMENTS IN SECURITIZATION 2014

THURSDAY, December 4, 2014
PLI New York Center
1777 Avenue of the Americas
New York City, NY
Richard Johns will be speaking on the “Examining Key Regulations Through a Global Lens” panel.

 
 
REAL ESTATE SUMMIT 2014: PARTNERING FOR CHANGE IN CALIFORNIA

FRIDAY, November 14, 2014
9:30 a.m. – 4:00 p.m. (PDT)
Hyatt Regency Century Plaza
2025 Avenue of the Stars
Los Angeles, CA 90067

Richard Johns will be a panelist on the “Solutions for a Recovering Market: Housing Affordability and Financing Homeownership” session.

 
 
SFIG & IMN ABS VEGAS 2015

SUNDAY, February 8, 2015 – WEDNESDAY, February 11, 2015
The Aria Resort and Casino
Las Vegas, NV
Registration available here

 
 
ADVOCACY OUTLOOK
If you would like to participate in the work SFIG is undertaking through our committees as highlighted below, please e-mail Committees@sfindustry.org. For specific inquiries on any of SFIG’s advocacy efforts, please contact the staff member listed for the related project.

The RMBS 3.0 Task Force continues to build upon the momentum of its recent release of its First Edition RMBS 3.0 Green Papers, and the submission of a response to Treasury’s request for input on Private Label Securities.  The Task Force is developing an agenda for its Second Edition Green Papers and will continue to address issues specific to private label mortgage securities on work streams relating to (1) Representations, Warranties, and Repurchase Enforcement; (2) Due Diligence, Data, and Loan-Level Disclosure; and, (3) Role of Transaction Parties and Bondholder Communications. We encourage members to participate in any or all of the working groups to contribute towards the mission of RMBS 3.0. For additional information on RMBS 3.0, or to join the Task Force, please contact Mary.Robinson@sfindustry.org.

The GSE Reform Task Force is finalizing its response to the FHFA’s request for input on guarantee fees. Last week,the Task Force met to discuss FHFA’s proposed structure for a single agency security and Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac, which SFIG will comment on next. The Task Force previously reviewed the Johnson-Crapo proposal, with SFIG staff summarizing its recommendations in a briefing book on the legislation. SFIG has also reviewed the House Republican's proposal for GSE Reform, the PATH Act. If you would like to learn more about SFIG’s activities in these areas, please contact Amanda.Bateman@sfindustry.org.

The Mortgage Loan-Level Disclosure Task Force has reviewed and developed additional data elements for potential disclosure. SFIG will use this work as a basis of discussions and correspondence with the Securities and Exchange Commission on the mortgage aspects of Regulation AB II. SFIG continues to have weekly Mortgage Industry Standards Maintenance Organization calls to go through data elements that lenders should deliver in securitizations. Please contact Alyssa.Acevedo@sfindustry.org for additional information on SFIG’s work on this topic.

The Volcker Task Force has worked with SFIG’s various asset class and legal counsel committees to identify areas within the Volcker Rule in need of clarification. The proposed questions and answers are currently being reviewed by the task force via survey. If your institution intends to provide a response to the survey, please do so as soon as possible. Please contact Amanda.Bateman@sfindustry.org to participate on the Volcker Task Force.

The Risk Retention Committee is continuing to follow up with regulators on risk retention questions across asset classes. Please contact Alyssa.Acevedo@sfindustry.org with any questions.

SFIG is launching its Chinese Market Committee and will be holding the first full committee call on September 12th. The agenda for this call includes: an introduction of the co-chairs, a high level description of SFIG’s partnership with the Chinese Securitization Forum, potential upcoming educational discussions and a sharing of recent market developments in China. If you would like more information on SFIG’s work with respect to Chinese securitization, please contact Alyssa.Acevedo@sfindustry.org.

SFIG’s Shadow Banking Task Force has established the following agenda:

  • Leverage the predictive powers of the G20’s shadow banking initiative to determine future SFIG advocacy initiatives;
  • Assess the level of regulation to which our members are already subject;
  • Measure the full impact of those regulations on lending decisions and business models; and
  • Provide input into IOSCO, BCBS and IAIS on the revitalization of securitization markets.

The Task Force will have its first full meeting in the coming weeks, and members from across asset classes are encouraged to participate. To register your interest in SFIG’s Shadow Banking Initiative, please contact Amanda.Bateman@sfindustry.org.

The Regulation AB II Task Force will be holding a call to walk through the key points of the Regulation AB II rules on Tuesday, September 2nd at 11:00 a.m. (EST). SFIG members who are interested in joining this task force or who have any questions should contact Alyssa.Acevedo@sfindustry.org.

SFIG is continuing to engage with regulators and legislators in order to further its advocacy efforts regarding the Liquidity Coverage Ratio proposal. Please contact Alyssa.Acevedo@sfindustry.org with your questions or comments.

The Derivatives in Securitization Task Force submitted a comment letter at the end of June, advocating for asset-backed securities issuers to qualify for the “low-risk financial end user” designation proposed by the prudential regulators in their original proposal. SFIG members who are interested in learning more about this initiative should email Alyssa.Acevedo@sfindustry.org.

SFIG’s Credit Rating Reform Task Force will reconvene next week via conference call to discuss the Securities and Exchange Commission’s recent Final Rules for nationally recognized statistical rating organizations, which were approved August 27th. The conference call will take place on Thursday, September 3rd at 10:00 a.m. (EST) and members interested in participating should contact Amanda.Bateman@sfindustry.org.

The Money Market Funds Working Group will be submitting a comment letter on the Securities and Exchange Commission’s July 23rd proposal which includes, among other things, possibly amending rule 2a-7’s issuer diversification provisions to eliminate an exclusion that is currently available for securities subject to a guarantee issued by a non-controlled person. SFIG also submitted acomment letter in September of 2013 on Money Market Fund Reform. If you are interested in joining this working group, please contact Alyssa.Acevedo@sfindustry.org

 
 
ISSUES SPOTLIGHT

SFIG member company, Lewtan, released the results of its Regulation AB II survey, focused largely on privacy issues: “Is the Securitization Market Prepared for Reg AB 2?: Regulation AB 2 Survey Results.” Please see below for the Executive Summary and link to the full paper.

Over the last month, Lewtan has surveyed securitization professionals to understand the market’s readiness in adopting the SEC’s Regulation AB 2 proposal and re-proposal. While the survey was initially introduced in the absence of any adoption timeframe, the SEC has since announced an open meeting on August 27 during which they will vote on the adoption of Regulation AB 2.

In many ways, the survey confirmed anecdotal conversations that Lewtan has had with issuers and investors over the past several months. Many are concerned by the potential risks introduced by the re-proposal, particularly the risk regarding how “potentially sensitive” data is to be provided and handled within the market.

Respondents are divided on how they view that risk; the most common concern is the headline risk posed by potential re-identification of a securitization issuer’s customers. This concern trumped any of the legal concerns, including FCRA risk, GLB risk, or other state privacy law or data handling risks. With that said, respondents are fairly evenly split on whether there is or is not any risk created by this new overlap between securities laws and consumer privacy laws.

Although public issuance has been on the decline since 2008, it has largely tracked with the overall decline in all types of securitized transactions. With the new Regulation AB 2 requirements potentially impacting both public and 144-A deals, most respondents feel that private deals will be more prevalent than public or 144-A transactions post Regulation AB 2 adoption. The majority of respondents are hopeful that the SEC will adopt many of the aspects highlighted in the various comment letters. Specifically, a majority believe that the SEC will reduce the amount and type of loan level data required. At the same time, loan level data for residential mortgage securities and commercial mortgage-backed securities are deemed to be the most important, though a fair number of respondents cited auto loan, auto lease, student loan, and equipment lease asset classes as similarly important.

Lewtan also asked a question to issuers regarding what they planned to provide and a question of investors regarding what they hoped to receive. The results were mixed. While some investors wish to take the raw XML data files directly from the issuer, the majority of investors will look to third-party vendors to play an intermediary role, just as many do today.

A final comment, since ‘Don’t Know’ was a valid option to many of the survey questions, many respondents elected to make that selection. The only conclusion we draw from that uncertainty is that the industry has only begun to contemplate the impact of Regulation AB 2 on their business. The good news is that we likely won’t need to spend much more time on speculation.

To view the full report, click here.

 
 
RECENT DEVELOPMENTS
EU REVIEWS RECENT INITIATIVES IN “ROADMAP FOR SECURITISATION”

Finance ministers in the European Union have drawn up a proposal that would boost funding to the real economy by reforming securitization markets, according to a recent Reuters report. The “Roadmap for Securitisation” lists 19 initiatives underway in Europe and globally to revitalize securitization and, according to Reuters, will be discussed by the bloc’s finance ministers at a meeting next month in Milan. Included among the initiatives is the recent proposal from the European Central Bank (“ECB”) and Bank of England for the development of a “high quality securitisation” that could be granted more lenient regulatory capital treatment in exchange for meeting certain criteria.

According to Reuters, the document noted the European Commission is the best Eurozone authority to coordinate work on these initiatives and should work with the ECB and other EU markets, insurance and banking officials to undertake a review of progress in these areas before the end of 2015. A review should “help identify persisting shortcomings and should help inform any further action where needed, including the merits of an EU harmonized framework,” the document said.

 
 
FED SYMPOSIUM IN JACKSON HOLE REVEALS LITTLE INSIGHT ON INFLATION

The focus was on jobs at this year’s Symposium in Jackson Hole, Wyoming, with Federal Reserve (“FRB”) officials indicating labor markets still need to improve further before they can withstand the impact of higher interest rates. While the event has long been considered the stage upon which the FRB previews its current thinking on policy decisions, FRB Chair Janet Yellen kept her remarks broadly focused on labor considerations, stating that stronger hiring and wages are still needed to drive demand. According to Yellen, while hiring has improved and the FRB has begun debating when “we should begin dialing back our extraordinary accommodation,” there are still significant concerns in the labor market, such as underuse of the workforce, which hint that it has yet to recover from the recession.

Taking a more hawkish approach, European Central Bank (“ECB”) top official Mario Draghi noted EU authorities “stand ready to adjust our policy stance further,” reinforcing speculation that the ECB will eventually begin quantitative easing. In the UK, comments from officials at the Bank of England suggested any rate increases would be gradual, while Bank of Japan Governor Haruhiko Kuroda’s message for reporters was consistent with Yellen’s: policy will likely remain consistent until prices stabilize or unless inflation increases. Given its theme of “Re-Evaluating Labor Market Dynamics,” market watchers seem to generally agree that inflation- the other half of the FRB’s dual mandate- was not a concern at this year’s Jackson Hole Symposium.

 
 
CALIFORNIA EARTHQUAKE SHAKES REGION WITH HIGH CONCENTRATION OF JUMBO RMBS

In light of the magnitude 6.0 earthquake that rattled the San Francisco Bay Area early Sunday morning, investors  again were reminded of the risks associated with investing in RMBS concentrated in geographic regions subject to natural disaster.  As home prices in San Francisco have risen almost 60 percent from $483,400 in 2011 to $769,600 today, the market in the Bay Area has become home to many jumbo loans.  In several recent jumbo RMBS transactions San Francisco had the greatest share of underlying home loans. In one recent offering, Bay Area home loans with an average balance of $962,578 represented 40.53 percent of the securitization.   

These high percentages of jumbo loans and high home prices belie the risk associated with investing in an RMBS transaction with potentially costly geographic risks. The New York Times reported that damage from Sunday’s earthquake could cost over $1 billion. Each of the recent jumbo RMBS transactions have included comments from rating agencies that the geographic concentration of the collateral is a potential concern. However, each of the recent transactions still received AAA ratings on the largest tranches of the offering.

 
 
CHINA ISSUES FIRST RMBS DEAL SINCE 2007

Last month, the Postal Savings Bank of China issued the country’s first residential mortgage backed security (“RMBS”) since 2007. The deal included more than 23,000 mortgages and totaled approximately 6.81 billion yuan ($1.1 billion).

Some industry experts state that China will not face the same kind of RMBS concerns as the U.S. because there are currently no subprime mortgages in China. The Postal Savings Bank’s RMBS has a weighted loan-to-value of around 61 percent and excludes “liar’s loans,” or mortgages without documentation of the buyer’s income or credit history.

China’s property sector has moved to the forefront in recent months with concerns over new home prices dropping in 64 out of the 70 cities surveyed. However, thus far, default rates of mortgages in the country appear relatively low. Two banks, China Construction Bank and the Bank of China, had default rates (non-performing loan ratios) of 0.17 percent and 0.35 percent on mortgages respectively, compared to overall non-performing loan ratios of 0.99 percent and 0.96 percent.

 
 
CHINESE UNIFIED SECURITIES ACCOUNT PLATFORM TO LAUNCH OCTOBER 1st

A Chinese state-owned clearing services firm announced Monday that starting on October 1st a unified account platform will be available for securities investors in China to trade through different brokerages and exchanges. The China Securities Depository and Clearing Corporation said that the single account will allow investors to trade in the Shanghai and Shenzhen stock exchanges.

The release of the single account platform will eliminate variations in trading and management in China, according to officials at the China Securities Regulatory Commission (“CSRC”). The CSRC said that removing approximately 50 differences across the operations of trading and management will allow for improvements in the operation of business and reductions in related costs.

 
 
CHINESE REGULATORS RELEASE NEW PRIVATE FUND REGULATIONS

Last Friday, the China Securities Regulatory Commission (“CSRC”) released a regulation pertaining to the marketing and sale of privately offered investment funds. Qualified investors in these funds will be categorized strictly according to the scale of their assets, risk tolerance and the minimum required investment amount under this new regulation.

A CSRC spokesperson stated that “the regulation is intended to promote the development of different privately offered investment funds while protecting the interests of investors.”

Recommendations for privately offered funds will be targeted towards prospective investors based on their risk tolerance. These privately offered funds include those that invest in equities, other securities, specific commodities and venture capital funds.

Earlier this month, China’s central government set aside 2 billion yuan ($324.8 million) to purchase stakes in 49 venture capital funds, a move that is expected to attract additional investors. Local governments will also take stakes in these funds.

 
 
MISMO TO RELEASE UPDATES IN NOVEMBER, AGAIN IN JULY 2015

The Mortgage Industry Standards Maintenance Organization (“MISMO”) is planning to issue two residential mortgage data standard updates over the next year. The first update, expected in November, will include new standards on loan data exchange transactions and corporate data formatting models for residential mortgage loan lifecycles. The November release, Version 3.3.1 will be reviewed in September at MISMO’s fall summit and will have backward compatibility. A second update will be published in July 2015, though MISMO has not indicated whether that will have backward compatibility. MISMO stated that the updates are designed “to respond quickly to industry needs while providing a clear timeline for industry to follow.”

 
 
INTERAGENCY GUIDANCE RELEASED REGARDING UNFAIR OR DECEPTIVE CREDIT PRACTICES 

Last Friday, the Federal Deposit Insurance Corporation (“FDIC”), the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the National Credit Union Administration, and the Office of the Comptroller of the Currency (collectively, “the Agencies”), issued guidance regarding certain consumer credit practices. As a result of the Dodd-Frank Act, the authority to issue credit practices rules for banks, savings associations, and federal credit unions was repealed. The Agencies note that institutions should not be interpreting this repeal as an indication that the unfair or deceptive practices  described in the former regulations are permitted, and remind that such institutions remain subject to Section 5 of the Federal trade Commission Act.

The Agencies’ Financial Institution Letter applies to all FDIC-supervised financial institutions.

 
 
UPCOMING EVENTS IN WASHINGTON
FEDERAL DEPOSIT INSURANCE CORPORATION 4TH ANNUAL CONSUMER RESEARCH SYMPOSIUM
THURSDAY, October 16, 2014 – FRIDAY, October 17, 2014
FDIC L. William Seidman Center
Hove Auditorium
3501 Fairfax Drive
Arlington, VA 22226
This symposium will focus on the recent research on consumers’ capabilities, knowledge, preferences, and experiences in the market for financial products and services, as well as the effects of public policy interventions and new regulations on consumers, households, communities, and financial institutions.
Registration is available here
 

SFIG COMMITTEES AND TASK FORCES

SFIG has a number of Committees and Task Forces meeting and working on many topics of interest to the securitization industry. Please email us for more information, including how to join.

SFIG is pleased to share this edition of its newsletter with our members, as well as our supporters in the structured finance community. To ensure that you receive future editions of the newsletter, please visit our website or email us to learn more about membership opportunities.

Contact Information

Richard Johns Executive Director

Kristi Leo Investor Relations

Sonny Abbasi Director of MBS Policy

Sairah Burki Director of ABS Policy

Michael Flood Director of Advocacy

Mary Robinson Senior Policy Analyst

Alyssa Acevedo Policy Analyst

Amanda Bateman Policy Analyst

Jennifer Serpas Office Manager

Allison Creswell Executive Administration


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